Q3 2006 StanCorp Financial Group, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to the StanCorp Financial Group, Inc., third quarter 2006 financial review conference call.

[OPERATOR INSTRUCTIONS]. At this time, I would like to turn the call over to Mr. Jeff Hallin, StanCorp's Second Vice President of Investor Relations and Financial Planning for opening remarks and introductions. Please go ahead, sir.

JEFF HALLIN, SVP IR, FINANCIAL PLANNING, STANCORP FINANCIAL GROUP, INC.: Welcome to StanCorp's financial review conference call. Here to discuss the results are Eric Parsons, Chairman, President, and Chief Executive Officer, Cindy McPike, Senior Vice President and Chief Financial Officer, Greg Ness, Senior Vice President Insurance Services Group, Kim Ledbetter Senior Vice President Asset Management Group, and Rob Erickson, Assistant Vice President and Controller. Today's call will begin with brief comments from Eric, Greg, and Cindy, then we will open it up for questions.

Before we begin I need to remind you that certain comments made during this conference call will include statements regarding growth plans and other anticipated developments for StanCorp's businesses and the intent, belief, and expectation of StanCorp's management regarding future performance. Some of the statements made are not historical facts but are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Because these forward-looking statements are subject to risks and uncertainties, actual results may differ from those expressed or implied. Factors that could cause actual results to differ materially from those expressed or implied have been disclosed as risk factors in the Company's third quarter earnings release and 2005 Form 10-K. With that I would now like to turn the call over to Eric.

ERIC PARSONS, CHAIRMAN, PRESIDENT, CEO, STANCORP FINANCIAL GROUP, INC.: Thank you, Jeff, and thanks to all of who you have joined us for our third quarter earnings call.

I'm pleased to report a solid third quarter for StanCorp Financial group. Net income excluding after-tax net capital gains and losses was $0.98 per diluted share. Our Insurance Services group and Asset Management group both contributed positive results for the quarter. In the Insurance Services business, the key driver of earnings is the benefit ratio, which as we saw earlier this year can fluctuate wide until quarter to quarter. During the third quarter we saw the overall benefit ratio move closer to expectations. This supports our belief that there is nothing systemic in our 2006 claims experience that indicates a trend. That was also true of our very favorable experience in 2005.

Our employee benefit sales were good. We continue to be a strong and disciplined player in the insurance markets, focusing on our expertise, integrity, commitment and exceptional customer service. In the Asset Management group, our retirement plan assets under administration continue to grow through net deposits and good customer retention. Individual annuity sales reflect continued demand for our traditional fixed annuities and our new indexed annuity products. Our mortgage loan originations were strong and we're pleased with the new money investment rates we achieved during the quarter.

Our vision to grow our Asset Management business is being realized. The Invesmart acquisition closed early in the quarter and brought nearly $11 billion in additional assets under administration to our growing retirement plans business. With the acquisition we also added a well seasoned sales force and over 400 high quality staff members located in the Invesmart operations across the country. We are working to integrate the people and systems of Invesmart and expect to see enhanced earnings diversification as we move into 2007 and beyond. We look forward to growth opportunities in this business as demographic trends show an expanding customers base for those seeking retirement planning and investment advice.

Also during the quarter Standard & Poor's raised the financial strength rating Standard Insurance Company to AA minus, and the credit rating for StanCorp to A minus reflecting our continued earnings diversification, extremely strong and stable earnings, very strong capitalization and liquidity. We were very pleased with the upgrade and this recognition of the efforts of our employees to continue to build a stronger and more diversified company. I am convinced that as long as we maintain focus on providing the products and services our customers want, with an emphasis on exceptional customer service, we will continue to grow and produce solid financial results.

With that, I will turn the call over to Greg followed by Cindy with the financial results. We'll leave plenty of time for your questions at the end. Greg.

GREG NESS, SVP INSURANCE SERVICES GROUP, STANCORP FINANCIAL GROUP, INC.: Thanks, Eric. I'm pleased to report good earnings for our Insurance Services segment. Our employee benefit sales are up 11.8% quarter over quarter reflecting growth in each of our key product lines. We are still seeing evidence of a very competitive sales environment. Our focus is to target customers that value our products and services and avoid those that merely seek the lowest price. We know this has been a difficult sales environment and we commend our sales representatives for their efforts in helping us grow the business by acquiring the right customers at the right price.

Premium growth for the quarter was 5.1% which was affected in part by higher terminations earlier this year although these were the right cases to lose. We are content to let cases walk if we are unable to get the right rate on them. Higher experience rated refunds also affect premium growth in the quarter. However, these partnerships with customers reflect the significant expertise resonant at the standard and our belief that sharing results with an employer makes a lot of sense for each of us. Our objective continues to be to grow this business 1 to 2% faster than the industry growth.

Premium growth in our individual disability business grew 14.6% quarter over quarter. Individual disability sales were strong for the quarter and our persistency in this business remains high. We have good diversification in terms of both occupation as well as geography. We are seeing our claims experience return to normal or heading in that direction. Our group life and A D and D and individual disability results were all within our expectations for the quarter. Within our group LCD business claims severity was somewhat higher than normal in early duration claims, those less than 12 months, although clearly within expected ranges. Recoveries for longer duration claims were normal this quarter, reversing the less favorable experience of last quarter.

This quarter confirms our conclusions in previous quarters that we are not seeing any trends or systemic issues with our claims experience. We will see fluctuations in experience on a quarter to quarter basis. However, we expect to continue to achieve our long-term return objectives. While we continue to invest in our customer service and claims areas, we also recognize that expenses need to be managed in proportion to premium growth. Thus you see a lower expense ratio this quarter. We will continue to focus on our core expertise in customer service, risk selection, and pricing while delivering superior value to our customers within this competitive environment.

With that I would like to turn the call over to Cindy McPike.

CINDY MCPIKE, SVP, CFO, STANCORP FINANCIAL GROUP, INC.: Thank you, Greg. Hello, everyone.

As you read this morning, our earnings per share excluding capital gains and loss were $0.98 compared to $0.96 for the very favorable third quarter of last year. Significant factors affecting our results quarter over quarter were increased premiums although at a lower rate of growth than last year, claims …